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Saturday, October 1, 2016

BSE Sensex and NSE Nifty charts (Sep 30, 2016): border skirmishes trigger strong bear attacks

For the month of Sep '16, FIIs were net buyers of equity worth Rs 3300 Crores and DIIs were net buyers of equity worth Rs 2000 Crores, as per provisional figures. Yet, Sensex and Nifty closed 2% lower for the month.

Taking advantage of panic selling on Thu. Sep 29 after announcement of a skirmish across the LOC in J&K, FIIs bought net equity worth Rs 3400 Crores and DIIs bought net equity worth Rs 1630 Crores. 

All their net selling during the month got neutralised in 1 day - but wasn't enough to reverse down trends that started after both indices touched 52 week highs during the trading week beginning Sep 6.

NDA Government is pressing ahead with its reform agenda. FPOs, share buybacks, large dividends of PSUs are raising funds. Shutdown of a few PSUs will trim losses. Implementation of GST will reduce revenue leakage.

BSE Sensex index chart pattern



The daily bar chart pattern of Sensex has been in a down trend (marked by blue down trend line) since touching a 52 week high of 29077 on Sep 8.

Note that the index had formed a bearish pattern of 'lower tops, lower bottoms' even before news of 'surgical strikes' on terrorist staging camps in PoK triggered a sharp fall below the 20 day and 50 day EMAs.

Support from the 27600 level has held so far. But a filling of the upward 'gap' (of 63 points) formed on Jul 11 - marked Gap 1 - may be on the cards, as FIIs are jittery about an escalation of hostilities in J&K.

If the Sensex falls even lower, stronger support can be expected from the 200 day EMA, which is just above another upward 'gap' (of 96 points) formed on Jun 30 - marked Gap 2.

Can the index fill 'Gap 2' and fall into bear territory? The possibility can't be ruled out entirely. But three of the four technical indicators - ROC, RSI, Slow stochastic - are looking oversold.

Also, there is likely support at 27050 level - which is midway between 'Gap 1' and 'Gap 2'. So, a deep correction may not happen. 

The index is trading above its 200 day EMA - which has formed a bullish saucer-like 'rounding bottom' pattern.

Bravehearts can start selective buying. Conservative investors should wait for the correction to end and check the early Q2 (Sep '16) results before buying.

NSE Nifty index chart pattern



The weekly bar chart pattern of Nifty has breached the blue up trend line drawn from the Feb '16 low and closed below the support level of 8650 - but is trading above its two weekly EMAs in bull territory.

In case the 20 week EMA fails to provide support, the index is likely to find stronger support from the 8350 level.

Weekly technical indicators are correcting overbought conditions. MACD is about to cross below its signal line and drop from its overbought zone. ROC is falling well below its 10 week MA and is about to enter negative zone. RSI and Slow stochastic have slipped down from their respective overbought zones.

Some more correction is likely. Nifty's TTM P/E touched its lowest level of 23.40 for the month of Sep '16, but still remains higher than its long-term average.

The breadth indicator NSE TRIN (not shown) is in neutral zone, but hinting at a short-term upward bounce.

Mid-cap and small-cap stocks took a huge hit during the panic selling on Sep 29, but recovered considerably the next day. So, even small investors are buying the dip and propping up the market.

Bottomline? Both Sensex and Nifty charts show about 4.6% corrections from their respective 52 week highs. Another 3-4% correction will provide very good buying opportunities. But indices don't move as per logic or expectations. Learn to rely on your asset allocation plans to get through uncertain times.

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